ECON 511 International Finance & Open Macroeconomy CHAPTER ONE Introduction to International Finance

I. Introduction WHY STUDY OPEN- ECONOMY MACROECONOMICS & FINANCE Are we involved with international economics in our daily lives? How the international finance be a part of the international economics?

WHY STUDY EXCHANGE RATE POLICY? What is the exchange rate? When do we need the exchange rate? How the exchange rate policy is important?

IS THERE ANY LINK BETWEEN EXCHANGE RATE POLICY & GLOBALIZATION? Think of : “ The relationship between international financial markets & exchange rate ”

STUDYING THE ECONOMICS INTERNATIONAL FINANCE Impact on output Impact on level of employment Impact on price level Impact on balance of payments

II. Macroeconomic Models of the Open Economy Open Economy v.s Closed Economy Modeling open economies is inherently complex There are two main different approaches to model the macroeconomy The first approach is the classical approach The second approach is the Keynesian approach However, there is a discussion of exchange rate overshooting